saving money
What is a Emergency Fund?

Life is unpredictable and is subjected to many changes. You could have a sudden change in fortune that might not always be for the better. Therefore the first thing you should do after you have fulfilled all your basic needs is to set up an emergency fund. Of course buying a house, paying off your debts, getting an entirely new wardrobe are all very important but not quite as important as having a fund to meet any unpleasant circumstances that might arise in the future.

An emergency fund is money that is easily accessible and will not be tied up anywhere when you need it the most. However it should only be used in the case of emergencies. Buying a new car or the latest designer wear does not classify as an emergency. Remember the whole point of such funds is to help you when you are in trouble and that is not going to happen if you end up spending it on trivial things anyway. There are some obvious emergencies that might need sudden cash.

For instance medical emergencies such as sudden accidents, your garage door collapsing suddenly, unforeseen expenditure in your kidís education due to loss of scholarships, etc. If you do not have some emergency stash for situations like these, you might face some serious trouble. Of course getting a loan might seem like a great idea but some emergencies have major time constraints that could create problems.

Many people might wonder how much money is required for emergency funds. However the truth is that it is very difficult to say since it is impossible to predict the nature of the emergencies you might face. The best way out is to analyze your financial situation carefully. Weigh your income against your expenditure and try to come up with a number that works best for you. However donít try to get overly ambitious and save so much that it puts a strain on your financial burdens.

To start an emergency fund, deposit an amount, however small in an account right away. If you think you cannot control yourself from spending the money then put it in a place that is not easily accessible like a bank thatís far off. Never get a card for that account, even if the card is for emergencies only. Chances are you might be tempted to use that card every time you go shopping. Ensure that the money is close enough that you can withdraw at a moments notice when you have to but at the same time far enough to force you to consider what you are doing before you do it.

It is important to be financially independent and owning your own house, car etc. This however does not mean you can stop worrying about your future. There could be expenses in the future that you simply cannot predict and an emergency fund is a much better option under such conditions than getting a mortgage or applying for a loan that would only make your financial situation worse. So start saving up now!

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